Is Warren Buffett’s massive cash pile an indication of a coming market downturn?

Warren Buffett, a name that resonates with investors globally, needs no introduction. His investment philosophy has become a guiding light for countless individuals seeking to navigate the complexities of the financial markets, with many striving to emulate his time-tested strategies.

He has consistently ranked among the world's richest individuals, but what sets him apart from other wealthy figures is that he didn't inherit his fortune or achieve it through technological innovation. Instead, he built his wealth through a disciplined and successful approach to the stock market.

One of his most famous sayings is, 'The first rule of investment is don’t lose, and the second rule is don’t forget the first rule." It seems the "Oracle of Omaha" is once again adhering to his own advice.

Recent moves suggest that Buffett is strategically trimming his positions in certain stocks, possibly in response to changing market conditions or valuations that no longer align with his investment principles.

Investors are often eager to discover what Warren Buffett has been buying or selling. Insights into his portfolio are usually revealed when Berkshire Hathaway files its quarterly Form 13F with the Securities and Exchange Commission (SEC), providing a snapshot of the buying and selling activities.

Buffett also shares his thoughts and strategies in his annual letter to shareholders. Additionally, he engages directly with investors during Berkshire's annual shareholder meeting, offering candid insights.

In the June quarter, Warren Buffett's Berkshire Hathaway made surprising moves by selling a substantial portion of its top holdings, including a long-time stake in Apple. This decision has caught the attention of the financial world, raising speculation about the market crash.

Offloads a significant portion in Apple

Berkshire Hathaway has been steadily trimming down its top holdings since October 2022, but the pace of selling was accelerated in 2024. According to its latest U.S. Securities and Exchange Commission filing on Wednesday, as per several reports, Buffett’s company sold over 389 million Apple shares in the second quarter alone, representing 50% of its holdings in the iPhone maker.

Although Berkshire’s earnings report earlier this month hinted at the massive Apple sell-off, the exact number of shares sold was only disclosed on Wednesday.

Despite this substantial reduction, Apple remains Berkshire Hathaway’s largest stock position. As of the end of the second quarter, Berkshire still holds 400 million Apple shares, valued at $84.2 billion—more than double the size of its stakes in Bank of America and American Express, the next-largest holdings.

At the close of 2023, Buffett’s stake in Apple was valued at $174.3 billion. While he began trimming his Apple holdings in the fourth quarter of last year, the pace of selling has quickened in 2024. In the first three months of the current calendar year, Buffett offloaded over 116 million shares, reducing more than 10% of Berkshire’s Apple stake.

Additionally, Buffett has reduced his positions in Bank of America and the Chinese EV maker BYD while making minimal new purchases. Further, he trimmed his stake in Chevron Corp. by 3.55%, which is under his top 5 holdings.

Berkshire’s cash reserves are at a record high

As a result of the Apple sale, Berkshire Hathaway’s cash and cash equivalents surged by $88 billion, reaching a record high of $277 billion in Q2 2024. This increase pushed the cash position relative to total assets to 25.0%, the highest in at least 24 years, according to some estimates.

Notably, this marked the seventh consecutive quarter in which Buffett and his team have sold more securities than they’ve purchased, with net-equity sales totaling $131.63 billion since October 1, 2022.

Of the $277 billion, $234.6 billion was invested in short-term Treasury bills—a significant rise from the $130 billion held at the end of last year. This amount even exceeds the $195 billion in T-bills held on the Federal Reserve's balance sheet, as per the media reports. 

Treasury bills, or T-bills, are U.S. government-issued securities with maturities ranging from four to 52 weeks. Investors in T-bills earn interest, and these earnings are exempt from state and local taxes.

At the end of the first quarter of the current year, Berkshire’s cash equivalents, including Treasury's, stood at $189 billion.

Is Buffett turning bearish?

Buffett’s famous investment principle is “Be cautious when others are greedy, and be bold when others are fearful.” His current strategy of accumulating cash, largely through Treasury, suggests he finds few appealing opportunities in today’s market.

While Buffett remains a long-term believer in the U.S. economy and stock market, his optimism does not lead him to overpay for even the most reliable businesses. Throughout his tenure as CEO of Berkshire Hathaway, he has consistently highlighted the resilience of the U.S. economy and the value of patience. However, his long-term optimism does not mean he will invest at any price.

This year’s U.S. stock market rally has been driven largely by tech stocks, buoyed by expectations that major tech companies will benefit from advancements in artificial intelligence. Nevertheless, weak performance by these companies in the June quarter has dampened investor sentiment. Buffett may have viewed this as the right opportunity to sell Apple stock, aligning with his cautious approach in an overheated market.

At Berkshire Hathaway’s annual meeting in May, Buffett mentioned that increasing the company’s cash and cash equivalents was a more prudent move than buying additional stocks, given the current market environment.

This isn’t the first time Buffett has opted to hold cash—he did the same during the dot-com bubble and the 2008 financial crisis. His record Treasury holdings demonstrate his preference for maintaining strong liquidity, particularly during uncertain times.

By keeping a large cash reserve, Berkshire Hathaway is well-positioned to act swiftly when the right opportunity arises. This deliberate, patient approach is central to Buffett’s strategy—he avoids rushing into investments and waits, sometimes for years, until the market offers a prime opportunity at a fair price, said analysts at Finance Magnates. 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.